Deck 18: Activity-Based Costing and Other Cost Management Tools

Question 1

Companies that use activity-based costing do NOT need to trace direct materials and direct labor to products as is done in traditional costing systems.

Answer 1

False

Question 2

The first step in the activity-based costing system is to identify each activity and its total indirect cost.

Answer 2

True

Question 3

Sleep Tight Company manufactures pillows using an activity-based costing system. The following information is provided for the month of June:
$\begin{array}{|l|r|r|r|}\hline& \text { Estimated Indirect } & & \text { Estimated Quantity of } \\\text { Activity } & \text { Activity Costs } & \text { Allocation Base } & \text { Allocatinn Base }\\\hline \begin{array}{l}\text { Materials } \\\text { landling }\end{array} & \$ 3,150 & \text { Number of parts } & 4,200 \text { parts }\\\hline \text { Assembling } & \$ 13,860 & \text { Number of parts } & 4,200 \text { parts } \\\hline \text { Packaging } & \$ 2,730 & \text { Number of pillows } & 1,050 \text { paillows }\\\hline\end{array}$

Each pillow consists of 4 parts and the total direct materials cost per pillow is $3.50. There is no direct labor. If Sleep Tight sells pillows for $21.00, they will earn a gross profit of $1.30 per pillow.

Answer 3

False

Question 4

Activity-based costing focuses on a single predetermined overhead rate for cost analysis.

Question 5

A traditional costing system employs multiple allocation rates, but an activity-based costing system uses only one single allocation rate.

Question 6

JC Manufacturing produces products that use a variety of components. Which of the following cost drivers would be the MOST applicable for assigning material handling costs to the finished products?

A) Direct labor hours
B) Direct labor cost
C) Number of units produced
D) Number of components used

Question 7

Which of the following statements is CORRECT regarding activity-based costing systems?

A) They have separate indirect cost allocation rates for each activity.
B) They are not as accurate or precise as traditional costing systems.
C) They accumulate overhead costs by processing departments.
D) They are less complex and, therefore, less costly than traditional systems.

Question 8

Activity-based costing systems combine many various elements of overhead into a single cost pool.

Question 9

With increased competition, managers need more accurate estimates of product costs to set prices and to identify the most profitable products.

Question 10

The main difference between activity-based costing and traditional costing systems is that activity-based
costing uses a separate allocation rate for each activity.

Question 11

Brannon Company manufactures ceiling fans and uses an activity-based costing system. Each ceiling fan consists of 20 separate parts totaling $95 in direct materials, and requires 2.5 hours of machine time to produce. Additional information follows:
$\begin{array}{|l|l|r|}\hline\text { Activity }&\text { Allocation Base }&\text { Cost Allocation Rate }\\\hline \text { Materials handling } & \text { Number of parts } & \$ .08 \\\hline \text { Machining } & \text { Machine hours } & \$ 7.20 \\\hline \text { Assembling } & \text { Number of parts } & \$ .35 \\\hline \text { Packaging } & \text { Number of finished units } & \$ 2.70\\\hline\end{array}$


-
What is the cost of machining per ceiling fan?

A) $18.00
B) $180.00
C) $30.00
D) $144.00

Question 12

An activity-based costing system can be a significant competitive advantage for a business which does bidding for manufacturing work.

Question 13

Which of the following is MOST likely to be the cost driver for the packaging and shipping activity?

A) Number of components
B) Number of orders
C) Hours of testing
D) Number of setups

Question 14

The following four steps are necessary in order to use an activity-based costing system:
1) Compute the allocation rate for each activity.
2) Identify activities and estimate their total costs.
3) Identify the cost driver for each activity and then estimate the quantity of each driver's allocation base.
4) Allocate the indirect costs to the cost object.
In what order are these steps performed?

A) 1,2,3,4
B) 3,1,2,4
C) 2,3,1,4
D) 2,1,3,4

Question 15

An activity-based costing system would be of less value to a business making a single product than it would be for a company with multiple products.

Question 16

Activity-based costing creates more precise matching of indirect costs with products.

Question 17

Two main benefits of activity-based costing are more accurate product cost information and more detailed information on costs of activities and the drivers of these costs.

Question 18

What is the last step in developing an activity-based costing system?

A) Estimate the total quantity of the cost driver.
B) Estimate the total indirect costs of each activity.
C) Identify the activities.
D) Allocate costs to the cost object.

Question 19

Activity-based management refers to using activity-based cost information to make decisions that increase profits while satisfying customers' needs.

Question 20

Brannon Company manufactures ceiling fans and uses an activity-based costing system. Each ceiling fan consists of 20 separate parts totaling $95 in direct materials and requires 2.5 hours of machine time to produce. Additional information follows:
$\begin{array}{|l|l|r|}\hline\text { Activity }&\text { Allocation Base }&\text { Cost Allocation Rate }\\\hline \text { Materials handling } & \text { Number of parts } & \$ .08 \\\hline \text { Machining } & \text { Machine hours } & \$ 7.20 \\\hline \text { Assembling } & \text { Number of parts } & \$ .35 \\\hline \text { Packaging } & \text { Number of finished units } & \$ 2.70\\\hline\end{array}$

-
What is the cost of materials handling per ceiling fan?

A) $1.60
B) $7.20
C) $6.00
D) $5.00

Question 21

Alpha Company manufactures breadboxes and uses an activity-based costing system. The following information is provided for the month of May:
$\begin{array}{|l|r|r|r|}\hline &\text { Estimated Indirect }&&\text { Estimated Quantity of } \\\text { Activity } & \text { Activity Costs } & \text { Allocation Base } & \text { Allocation Base }\\\hline \text { Materials handling } & \$ 3,500 & \text { Number of parts } & 5,000 \text { parts } \\\hline \text { Assembling } & \$ 12,000 & \text { Number of parts } & 5,000 \text { parts } \\\hline \text { Packaging } & \$ 5,750 & \text { Number of bread boxes } & 1,250 \text { bread boxes } \\\hline\end{array}$

Each breadbox consists of 4 parts, and the direct materials cost per breadbox is $7.00.

-What is the cost of materials handling and assembling per breadbox?

A) $4.60
B) $17.00
C) $14.40
D) $12.40

Question 22

Pitt Jones Company had the following activities, allocated costs, and allocation bases:
$$\begin{array} { | l | r | r | } \hline \text { Artivitias } & \text { Allocated Casts } & { \text { Allocation Bare } } \\\hline \text { Accaunt inquiry (hours) } & \$ 60,000 & 2,000 \text { hours } \\\hline \text { Account billing (lines) } & \$ 30,000 & 20,000 \text { lines } \\\hline \text { Afcaunt verification (accounts) } & \$ 15,000 & 20,000 \text { accounts } \\\hline \text { Correspandence (letters) } & \$ 10,000 & 1,000 \text { letters } \\\hline\end{array}$$
The above activities are carried out at two of their regional offices.
$\begin{array}{|l|r|r|}\hline& \text { Northeast Office } & \text { Midwest Office } \\\hline \text { Account inquiry (hours) } & 100 \text { hours } & 200 \text { hours } \\\hline \text { Account billing (lines) } & 10,000 \text { lines } & 7,000 \text { lines } \\\hline \text { Account verification (accounts) } & 1,000 \text { accounts } & 600 \text { accounts } \\\hline \text { Correspondence(letters) } & 50 \text { letters } & 100 \text { letters }\\\hline \end{array}$


-
What is the cost per unit for the correspondence activity?

A) $10.00
B) $30.50
C) $25.00
D) $0.75

Question 23

Sleep Tight Company manufactures pillows using an activity-based costing system. The following information is provided for the month of June:
$\begin{array}{|l|r|r|r|}\hline &\text { Estimated Indirect }&&\text { Estimated Quantity of } \\\text { Activity } & \text { Activity Costs } & \text { Allocation Base } & \text { Allocation Base }\\\hline \text { Materials handling } & \$ 3,150 & \text { Number of parts } & 4,200 \text { parts } \\\hline \text { Assembling } & \$ 13,860 & \text { Number of parts } & 4,200 \text { parts } \\\hline \text { Packaging } & \$ 2,730 & \text { Number of pillows } & 1,050 \text { pillows }\\\hline\end{array}$

Each pillow consists of 4 parts and the total direct materials cost per pillow is $3.50.

- There is no direct labor. What is the total manufacturing cost per pillow?

A) $16.20
B) $22.30
C) $18.50
D) $26.50

Question 24

Sleep Tight Company manufactures pillows using an activity-based costing system. The following information is provided for the month of June:
$\begin{array}{|l|r|r|r|}\hline &\text { Estimated Indirect }&&\text { Estimated Quantity of } \\\text { Activity } & \text { Activity Costs } & \text { Allocation Base } & \text { Allocation Base }\\\hline \text { Materials handling } & \$ 3,150 & \text { Number of parts } & 4,200 \text { parts } \\\hline \text { Assembling } & \$ 13,860 & \text { Number of parts } & 4,200 \text { parts } \\\hline \text { Packaging } & \$ 2,730 & \text { Number of pillows } & 1,050 \text { pillows }\\\hline\end{array}$

Each pillow consists of 4 parts, and the total direct materials cost per pillow is $3.50.

-
What is the total cost of materials handling and assembling for each pillow?

A) $15.40
B) $16.20
C) $18.80
D) $13.20

Question 25

Pitt Jones Company had the following activities, allocated costs, and allocation bases:
$$\begin{array} { | l | r | r | } \hline \text { Artivitias } & \text { Allocated Costs } & { \text { Allocation Base } } \\\hline \text { Accaunt inquiry (hours) } & \$ 60,000 & 2,000 \text { hours } \\\hline \text { Account billing (lines) } & \$ 30,000 & 20,000 \text { lines } \\\hline \text { Afcaunt verification (accounts) } & \$ 15,000 & 20,000 \text { accounts } \\\hline \text { Correspandence (letters) } & \$ 10,000 & 1,000 \text { letters } \\\hline\end{array}$$
The above activities are carried out at two of their regional offices.
$\begin{array}{|l|r|r|}\hline& \text { Northeast Office } & \text { Midwest Office } \\\hline \text { Account inquiry (hours) } & 100 \text { hours } & 200 \text { hours } \\\hline \text { Account billing (lines) } & 10,000 \text { lines } & 7,000 \text { lines } \\\hline \text { Account verification (accounts) } & 1,000 \text { accounts } & 600 \text { accounts } \\\hline\text { Correspondence (letters) } & 50 \text { letters } & 100 \text { letters }\\\hline\end{array}$

-
How much of the account inquiry cost will be assigned to the Midwest Office?

A) $2,000
B) $6,500
C) $3,000
D) $6,000

Question 26

Kenney Company uses activity-based costing to account for its manufacturing process. Kenney Company produces tires, and each tire has $.50 of direct materials, includes 20 parts and requires 2 hours of machine time. There is no direct labor. Additional information follows:
$\begin{array}{|l|l|r|}\hline\text { Activity }&\text { Allocation Base }&\text { Cost Allocation Rate }\\\hline \text { Materials handling } & \text { Number of parts } & \$ .16\\\hline \text { Machining } & \text { Machine hours } & \$ 14.40 \\\hline \text { Assembling } & \text { Number of parts } & \$ .70\\\hline \text { Packaging } & \text { Number of finished units } & \$ 5.40\\\hline\end{array}$



-
What is the cost of machining per tire?

A) $28.80
B) $26.40
C) $25.80
D) $29.50

Question 27

Pitt Jones Company had the following activities, allocated costs, and allocation bases:
$$\begin{array} { | l | r | r | } \hline \text { Activities } & \text { Allocated Costs } & { \text {Allocation Base} } \\\hline \text { Account inquiry (hours) } &\$60,000& 2,000 \text { hours } \\\hline \text { Account billing (lines) } &\$ 30,000&20,000 \text { lines } \\\hline \text { Account verification (accounts) } & \$15,000&20,000 \text { accounts } \\\hline \text { Correspondence (letters) } & \$10,000& 1,000 \text { letters } \\\hline\end{array}$$

The above activities are carried out at two of their regional offices.
$$\begin{array} { | l | r | r | } \hline & \text { Northeast Office } & { \text { Midwest Office } } \\\hline \text { Account inquiry (hours) } & 100 \text { hours } & 200 \text { hours } \\\hline \text { Account billing (lines) } & 10,000 \text { lines } & 7,000 \text { lines } \\\hline \text { Account verification (accounts) } & 1,000 \text { accounts } & 600 \text { accounts } \\\hline \text { Correspondence (letters) } & 50 \text { letters } & 100 \text { letters } \\\hline\end{array}$$

-
What is the cost per unit for the account billing activity?

A) $1.50
B) $30.00
C) $1.60
D) $1.43

Question 28

Quality Stereo Company has provided the following information regarding its activity-based costing system:
• Purchasing department costs are allocated based on purchase orders and the cost allocation rate is $75 per purchase order.
• Assembly department costs are allocated based on the number of parts used and the cost allocation rate is $1.00 per part.
• Packaging department costs are allocated based on the number of units produced and the allocation rate is $2.00 per unit produced.
Each stereo produced has 50 parts, and the direct materials cost per unit is $70. There are no direct labor costs. Quality Stereo has an order for 1,000 stereos which will require 50 purchase orders in all. What is the total cost of the 1,000 stereos?

A) $125,750
B) $55,750
C) $123,750
D) $122,000

Question 29

Brannon Company manufactures ceiling fans and uses an activity-based costing system. Each ceiling fan consists of 20 separate parts totaling $95 in direct materials, and requires 2.5 hours of machine time to produce. There are no direct labor costs. Additional information follows:
$\begin{array}{|l|l|r|}\hline\text { Activity }&\text { Allocation Base }&\text { Cost Allocation Rate }\\\hline \text { Materials handling } & \text { Number of parts } & \$ .08 \\\hline \text { Machining } & \text { Machine hours } & \$ 7.20 \\\hline \text { Assembling } & \text { Number of parts } & \$ .35 \\\hline \text { Packaging } & \text { Number of finished units } & \$ 2.70\\\hline\end{array}$


-
What is the total manufacturing cost per ceiling fan?

A) $125.75
B) $121.13
C) $115.32
D) $124.30

Question 30

Kenney Company uses activity-based costing to account for its manufacturing process. Kenney Company produces tires and each tire has $.50 of direct materials, includes 20 parts and requires 2 hours of machine time. There is no direct labor. Additional information follows:
$\begin{array}{|l|l|r|}\hline\text { Activity }&\text { Allocation Base }&\text { Cost Allocation Rate }\\\hline \text { Materials handling } & \text { Number of parts } & \$ .16\\\hline \text { Machining } & \text { Machine hours } & \$ 14.40 \\\hline \text { Assembling } & \text { Number of parts } & \$ .70\\\hline \text { Packaging } & \text { Number of finished units } & \$ 5.40\\\hline\end{array}$


-
What is the cost of materials handling per tire?

A) $5.60
B) $16.00
C) $1.60
D) $3.20

Question 31

Which of the following statements is FALSE?

A) Many traditional costing systems can distort product costs and profitability.
B) Activity-based costing systems tend to be more costly than traditional costing systems.
C) Many traditional costing systems tend to combine various costs into a single cost pool.
D) Activity-based costing systems tend to use fewer cost pools than does a traditional costing system.

Question 32

Pitt Jones Company had the following activities, allocated costs, and allocation bases:
$$\begin{array} { | l | r | r | } \hline \text { Artivitias } & \text { Allocated Casts } & { \text { Allocation Bare } } \\\hline \text { Accaunt inquiry (hours) } & \$ 60,000 & 2,000 \text { hours } \\\hline \text { Account billing (lines) } & \$ 30,000 & 20,000 \text { lines } \\\hline \text { Afcaunt verification (accounts) } & \$ 15,000 & 20,000 \text { accounts } \\\hline \text { Correspandence (letters) } & \$ 10,000 & 1,000 \text { letters } \\\hline\end{array}$$
The above activities are carried out at two of their regional offices.
$\begin{array}{|l|r|r|}\hline& \text { Northeast Office } & \text { Midwest Office } \\\hline \text { Account inquiry (hours) } & 100 \text { hours } & 200 \text { hours } \\\hline \text { Account billing (lines) } & 10,000 \text { lines } & 7,000 \text { lines } \\\hline \text { Account verification (accounts) } & 1,000 \text { accounts } & 600 \text { accounts } \\\hline \text { Correspondence(letters) } & 50 \text { letters } & 100 \text { letters }\\\hline \end{array}$

-
What is the cost per unit for the account verification activity?

A) $30.00
B) $0.50
C) $2.25
D) $0.75

Question 33

Pitt Jones Company had the following activities, allocated costs, and allocation bases:
$$\begin{array} { | l | r | r | } \hline \text { Artivitias } & \text { Allocated Casts } & { \text { Allocation Bare } } \\\hline \text { Accaunt inquiry (hours) } & \$ 60,000 & 2,000 \text { hours } \\\hline \text { Account billing (lines) } & \$ 30,000 & 20,000 \text { lines } \\\hline \text { Afcaunt verification (accounts) } & \$ 15,000 & 20,000 \text { accounts } \\\hline \text { Correspandence (letters) } & \$ 10,000 & 1,000 \text { letters } \\\hline\end{array}$$
The above activities are carried out at two of their regional offices:
$\begin{array}{|l|r|r|}\hline& \text { Northeast Office } & \text { Midwest Office } \\\hline \text { Account inquiry (hours) } & 100 \text { hours } & 200 \text { hours } \\\hline \text { Account billing (lines) } & 10,000 \text { lines } & 7,000 \text { lines } \\\hline \text { Account verification (accounts) } & 1,000 \text { accounts } & 600 \text { accounts } \\\hline\text { Correspondence (letters) } & 50 \text { letters } & 100 \text { letters }\\\hline\end{array}$


-
How much of the account verification costs will be assigned to the Northeast Office?

A) $800
B) $2,500
C) $750
D) $1,500

Question 34

Pitt Jones Company had the following activities, allocated costs, and allocation bases:
$\begin{array}{|l|r|r|r|}\hline \text { Activities } & \text { Allocated Costs } & \text { Allocation Base } \\\hline \text { Account inquiry (hours) } & \$ 60,000 & 2,000 \text { hours } \\\hline \text { Account billing (lines) } & \$ 30,000 & 20,000 \text { lines } \\\hline \text { Account verification (accounts) } & \$ 15,000 & 20,000 \text { accounts } \\\hline \text { Correspondence (letters) } & \$ 10,000 & 1,000 \text { letters }\\\hline\end{array}$

The above activities are carried out at two of their regional offices.
$$\begin{array} { | l | r | r | } \hline & \text { Northeast Office } & { \text { Midwest Office } } \\\hline \text { Account inquiry (hours) } & 100 \text { hours } & 200 \text { hours } \\\hline \text { Account billing (lines) } & 10,000 \text { lines } & 7,000 \text { lines } \\\hline \text { Account verification (accounts) } & 1,000 \text { accounts } & 600 \text { accounts } \\\hline \text { Correspondence (letters) } & 50 \text { letters } & 100 \text { letters } \\\hline\end{array}$$

-
What is the cost per unit for the account inquiry activity?

A) $0.75
B) $30.00
C) $10.00
D) $1.50

Question 35

Brannon Company manufactures ceiling fans and uses an activity-based costing system. Each ceiling fan consists of 20 separate parts totaling $95 in direct materials, and requires 2.5 hours of machine time to produce. Additional information follows:
$\begin{array}{|l|l|r|}\hline\text { Activity }&\text { Allocation Base }&\text { Cost Allocation Rate }\\\hline \text { Materials handling } & \text { Number of parts } & \$ .08 \\\hline \text { Machining } & \text { Machine hours } & \$ 7.20 \\\hline \text { Assembling } & \text { Number of parts } & \$ .35 \\\hline \text { Packaging } & \text { Number of finished units } & \$ 2.70\\\hline\end{array}$


-
What is the cost of assembling per ceiling fan?

A) $87.50
B) $7.00
C) $7.50
D) $35.00

Question 36

Kenney Company uses activity-based costing to account for its manufacturing process. Kenney Company produces tires, and each tire has $.50 of direct materials, includes 20 parts and requires 2 hours of machine time. There is no direct labor. Additional information follows:
$\begin{array}{|l|l|r|}\hline\text { Activity }&\text { Allocation Base }&\text { Cost Allocation Rate }\\\hline \text { Materials handling } & \text { Number of parts } & \$ .16\\\hline \text { Machining } & \text { Machine hours } & \$ 14.40 \\\hline \text { Assembling } & \text { Number of parts } & \$ .70\\\hline \text { Packaging } & \text { Number of finished units } & \$ 5.40\\\hline\end{array}$



-
What is the cost of assembling per tire?

A) $15.40
B) $7.00
C) $14.00
D) $28.00

Question 37

Alpha Company manufactures breadboxes and uses an activity-based costing system. The following information is provided for the month of May:
$\begin{array}{|l|r|r|r|}\hline &\text { Estimated Indirect }&&\text { Estimated Quantity of } \\\text { Activity } & \text { Activity Costs } & \text { Allocation Base } & \text { Allocation Base }\\\hline \text { Materials handling } & \$ 3,500 & \text { Number of parts } & 5,000 \text { parts } \\\hline \text { Assembling } & \$ 12,000 & \text { Number of parts } & 5,000 \text { parts } \\\hline \text { Packaging } & \$ 5,750 & \text { Number of bread boxes } & 1,250 \text { bread boxes } \\\hline\end{array}$


Each breadbox consists of 4 parts, and the direct materials cost per breadbox is $7.00.

- There is no direct labor. What is the total manufacturing cost per breadbox?

A) $17.40
B) $24.00
C) $12.40
D) $26.00

Question 38

Sleep Tight Company manufactures pillows using an activity-based costing system. The following information is provided for the month of June:
$\begin{array}{|l|r|r|r|}\hline &\text { Estimated Indirect }&&\text { Estimated Quantity of } \\\text { Activity } & \text { Activity Costs } & \text { Allocation Base } & \text { Allocation Base }\\\hline \text { Materials handling } & \$ 3,150 & \text { Number of parts } & 4,200 \text { parts } \\\hline \text { Assembling } & \$ 13,860 & \text { Number of parts } & 4,200 \text { parts } \\\hline \text { Packaging } & \$ 2,730 & \text { Number of pillows } & 1,050 \text { pillows }\\\hline\end{array}$

Each pillow consists of 4 parts, and the total direct materials cost per pillow is $3.50.

-
What is the total cost of packaging per pillow?

A) $3.50
B) $7.00
C) $9.38
D) $2.60

Question 39

Pitt Jones Company had the following activities, allocated costs, and allocation bases:
$$\begin{array} { | l | r | r | } \hline \text { Artivitias } & \text { Allocated Casts } &{ \text { Allocation Bare } } \\\hline \text { Accaunt inquiry (hours) } & \$ 60,000 & 2,000 \text { hours } \\\hline \text { Account billing (lines) } & \$ 30,000 & 20,000 \text { lines } \\\hline \text { Afcaunt verification (accounts) } & \$ 15,000 & 20,000 \text { accounts } \\\hline \text { Correspandence (letters) } & \$ 10,000 & 1,000 \text { letters } \\\hline\end{array}$$
The above activities are carried out at two of their regional offices.
$\begin{array}{|l|r|r|}\hline& \text { Northeast Office } & \text { Midwest Office } \\\hline \text { Account inquiry (hours) } & 100 \text { hours } & 200 \text { hours } \\\hline \text { Account billing (lines) } & 10,000 \text { lines } & 7,000 \text { lines } \\\hline \text { Account verification (accounts) } & 1,000 \text { accounts } & 600 \text { accounts } \\\hline\text { Correspondence (letters) } & 50 \text { letters } & 100 \text { letters }\\\hline\end{array}$


-
How much of the correspondence cost will be assigned to the Northeast Office?

A) $500
B) $1,200
C) $2,500
D) $800

Question 40

Orlando Avionics makes three types of radios for small aircraft-model A, model B, and model C. The manufacturing operations are mechanized and there is no direct labor. Manufacturing overhead costs are significant, and Orlando has adopted an activity-based costing system. Direct materials costs per unit for each model are as follows:
Model A $28
Model B $32
Model C $40
Orlando has three activities-assembly, materials management, and testing. The cost driver for assembly is machine hours. The cost driver for materials management is number of parts, and the cost driver for testing is the number of units of product. Total costs and production volumes for the year 2012 were estimated as follows:
$$\begin{array} { | l | r | r | r | } \hline & \text { Total cost } & { \text { Total units } } & \\\hline \text { Assembly } & \$ 780,000 & 120,000 & \text { Machine hours } \\\hline \text { Materials management } & \$ 120,000 & 80,000 & \text { Parts } \\\hline \text { Testing } & \$ 22,500 & 5,000 & \text { Units } \\\hline\end{array}$$

-
What is the allocation rate for the Assembly activity? (Please round to the nearest cent.)

A) $7.69 per machine hour
B) $0.60 per machine hour
C) $0.15 per machine hour
D) $6.50 per machine hour

Question 41

An activity-based costing system improves the allocation of which of the following manufacturing costs?

A) Indirect manufacturing costs
B) Direct labor
C) Direct materials
D) Sales commissions

Question 42

Orlando Avionics makes three types of radios for small aircraft-model A, model B, and model C. The manufacturing operations are mechanized and there is no direct labor. Manufacturing overhead costs are significant, and Orlando has adopted an activity-based costing system. Direct materials costs per unit for each model are as follows:
Model A $28
Model B $32
Model C $40
Orlando has three activities-assembly, materials management, and testing. The cost driver for assembly is machine hours. The cost driver for materials management is number of parts, and the cost driver for testing is the number of units of product. Total costs and production volumes for the year 2012 were estimated as follows:
$$\begin{array} { | l | r | r | r | } \hline & \text { Total cost } &{ \text { Total units } } & \\\hline \text { Assembly } & \$ 780,000 & 120,000 & \text { Machine hours } \\\hline \text { Materials management } & \$ 120,000 & 80,000 & \text { Parts } \\\hline \text { Testing } & \$ 22,500 & 5,000 & \text { Units } \\\hline\end{array}$$

-
The Model A radio requires 12 parts to construct, and also requires 16 machine hours of processing. What is the manufacturing cost to make one unit of Model A?

A) $150.00
B) $132.00
C) $126.50
D) $154.50

Question 43

Orlando Avionics makes three types of radios for small aircraft-model A, model B, and model C. The manufacturing operations are mechanized and there is no direct labor. Manufacturing overhead costs are significant, and Orlando has adopted an activity-based costing system. Direct materials costs per unit for each model are as follows:
Model A $28
Model B $32
Model C $40
Orlando has three activities-assembly, materials management, and testing. The cost driver for assembly is machine hours. The cost driver for materials management is number of parts, and the cost driver for testing is the number of units of product. Total costs and production volumes for the year 2012 were estimated as follows:
$$\begin{array} { | l | r | r | r | } \hline & \text { Total cost } & { \text { Total units } } & \\\hline \text { Assembly } & \$ 780,000 & 120,000 & \text { Machine hours } \\\hline \text { Materials management } & \$ 120,000 & 80,000 & \text { Parts } \\\hline \text { Testing } & \$ 22,500 & 5,000 & \text { Units } \\\hline\end{array}$$

-
The Model B radio requires 15 parts to construct, and also requires 18 machine hours of processing. What is the manufacturing cost to make one unit of Model B?

A) $150.00
B) $176.00
C) $126.50
D) $144.00

Question 44

Ace Plastics produces many different kinds of products all in one manufacturing facility. They have identified four activities for their costing system:
Materials management - allocated by number of purchase orders
Chemical processing - allocated on metric tons
Molding - allocated on direct labor hours
Packaging - allocated by number of units produced
The activity rates are as follows:
$$\begin{array} { | l | r| r | } \hline \text { Materials management } & \$ 12.00 & \text { Per purchase order } \\\hline \text { Chemical processing } & \$ 7.50 & \text { Per metric ton } \\\hline \text { Molding } & \$ 24.00& \text { Per direct labor hour } \\\hline \text { Packaging } & \$ 0.10 & \text { Per unit } \\\hline\end{array}$$
Ace received an order for 3,000 plastic toys. The engineering design shows that the order will require $540 of direct material cost in total, $90 of direct labor cost, will require 4 purchase orders, will use 2 metric tons of chemical base, will need 8 direct labor hours, and will produce 3.000 units of product. What will the full production cost of the order be?

A) $630
B) $645
C) $1,095
D) $1,185

Question 45

Which of the following would most likely be treated as an activity in an activity-based costing system?

A) Direct labor cost
B) Machine processing
C) Direct materials cost
D) Sales revenues

Question 46

Formosa Steel Products makes steel building materials for export, and uses an activity-based costing system to account for the indirect manufacturing costs of its various products. Indirect costs for the whole factory are broken down into three activities-casting, materials handling, and milling. The cost driver for casting is machine hours; the cost driver for material handling is kilograms, and the cost driver for milling is direct labor hours. Activity costs and volumes for the year were estimated as follows:
$$\begin{array} { | l | r | r | r | } \hline { \text { Activity } } & { \text { Cost } } &{ \text { Volume } } & \\\hline \text { Casting } & \$ 2,000,000 & 800,000.00 & \text { Machine hours } \\\hline \text { Material Handling } & \$ 400,000 & 500,000.00 & \text { Kilograms } \\\hline \text { Milling } & \$ 1,120,000 & 140,000.00 & \text { Direct labor hours } \\\hline\end{array}$$
One product is steel reinforcement rods, sold by the metric ton. Engineering reports show that one metric ton of steel reinforcement rods requires $100 of direct materials cost plus $50 of direct labor cost. Producing one metric ton of steel rods also requires 24 machine hours for casting, weighs 1,000 kilograms, and requires 15 direct labor hours.

-
What is the activity rate for the material handling activity?

A) $1.25 per kg
B) $4.40 per kg
C) $2.50 per kg
D) $0.80 per kg

Question 47

Traditional costing systems can distort unit manufacturing costs and product profitability when many products are produced and the various products have significantly different production processes.

Question 48

Ace Plastics produces many different kinds of products all in one manufacturing facility. They have identified four activities for their costing system:
Materials management - allocated by number of purchase orders
Chemical processing - allocated on metric tons
Molding - allocated on direct labor hours
Packaging - allocated by number of units produced
The activity rates are as follows:
$$\begin{array} { | l | r| r | } \hline \text { terials management } & \$ 12.00 & \text { Per purchase order } \\\hline \text { Chemical processing } & \$ 7.50& \text { Per metric ton } \\\hline \text { Molding } & \$ 24.00& \text { Per direct labor hour } \\\hline \text { Packaging } & \$ 0.10& \text { Per unit } \\\hline\end{array}$$
Ace received an order for 3,000 plastic toys. The engineering design shows that the order will require $540 of direct material cost in total, $90 of direct labor cost, will require 4 purchase orders, will use 2 metric tons of chemical base, will need 8 direct labor hours, and will produce 3.000 units of product. How much is the manufacturing cost for one unit of product? (Please round to the nearest tenth of a cent.)

A) $0.630
B) $0.365
C) $0.395
D) $0.185

Question 49

AAA Metal Bearings produces two sizes of metal bearings (sold by the crate)-standard and heavy. The standard bearings require $200 of direct materials per unit (per crate) and the heavy bearings require $245 of direct materials per unit. The operation is mechanized and there is no direct labor. Previously AAA used a single plantwide allocation rate for manufacturing overhead, which was $1.55 per machine hour. Based on the single rate, gross profit data were as follows:
$$\begin{array} { | l | r | r | } \hline \text { Per unit } & { \text { Standard } } & { \text { Heavy } } \\\hline \text { Direct materials cost } & \$ 200.00 & \$ 245.00 \\\hline \text { Direct labor cost } & \$ 0.00 & \$ 0.00 \\\hline \text { Manuf overhead cost } & \$ 124.00 & \$ 93.00 \\\hline \text { Total manuf cost } & \$ 324.00 & \$ 338.00 \\\hline & & \\\hline \text { Price per unit } & \$ 350.00 & \$ 370.00 \\\hline \text { Gross profit per unit } & \$ 26.00 & \$ 32.00 \\\hline\end{array}$$
Although the data showed that the heavy bearings were more profitable than the standard bearings, the plant manager knew that the heavy bearings required much more processing in the metal fabrication phase than the standard bearings, and that this factor was not adequately reflected in the single allocation rate. He suspected that it was distorting the profit data. He suggested adopting an activity based costing approach.
Working together, the engineers and accountants identified the following three manufacturing activities, and broke down the annual overhead costs as shown:
$$\begin{array} { | l | r | } \hline \text { Activities: } & \text { Estimated Cost } \\\hline \text { Metal fabrication } & \$ 420,000 \\\hline \text { Machine processing } & \$ 152,000 \\\hline \text { Packaging } & \$ 17,000 \\\hline & \$ 589,000 \\\hline\end{array}$$
Engineers believed that metal fabrication costs should be allocated by weight, and estimated that the plant processed 12,000 kilos of metal per year. Machine processing costs were correlated to machine hours, and the engineers estimated a total of 380,000 machine hours for the year. Packaging costs were the same for both types of products, and so they could be allocated simply by the number of units produced. The production plan provided for 4,000 units of standard and 1,000 units of heavy bearings to be produced during the year. Additional data on a per unit basis are as follows:
$$\begin{array} { | l | r | r | } \hline & { \text { Standard } } & { \text { Heavy } } \\\hline \text { Silos per unit } & 2.00 & 4.00 \\\hline \text { Nechine hours per urit } & 80.00 & 60.00 \\\hline\end{array}$$
Using the data above, please calculate activity rates. Then, following the ABC methodology, calculate the production cost and gross profit for one unit of heavy bearings, using the format below:
$$\begin{array} { | l | l | l | } \hline { \text { Standard Bearings } } & \\\hline \text { Per Unit } & \text { Activity rate } & \text { Amountper unit } \\\hline \text { Direct materials}\\\hline \text { Metal fabrication } & & \\\hline \text { Machine processing } & & \\\hline \text { Packaging } & & \\\hline \text { Total mfg cost } & & \\\hline & & \\\hline \text { Price } & & \\\hline \text { Gross profit } & & \\\hline\end{array}$$

Question 50

Activity-based costing systems and traditional costing systems will produce the same results for product cost and profitability, although they use different methods of calculation.

Question 51

Formosa Steel Products makes steel building materials for export, and uses an activity-based costing system to account for the indirect manufacturing costs of its various products. Indirect costs for the whole factory are broken down into three activities-casting, materials handling, and milling. The cost driver for casting is machine hours; the cost driver for material handling is kilograms, and the cost driver for milling is direct labor hours. Activity costs and volumes for the year were estimated as follows:
$$\begin{array} { | l | r | r | r | } \hline { \text { Activity } } & { \text { Cost } } & { \text { Volume } } & \\\hline \text { Casting } & \$ 2,000,000 & 800,000.00 & \text { Machine hours } \\\hline \text { Material Handling } & \$ 400,000 & 500,000.00 & \text { Kilograms } \\\hline \text { Milling } & \$ 1,120,000 & 140,000.00 & \text { Direct labor hours } \\\hline\end{array}$$
One product is steel reinforcement rods, sold by the metric ton. Engineering reports show that one metric ton of steel reinforcement rods requires $100 of direct materials cost plus $50 of direct labor cost. Producing one metric ton of steel rods also requires 24 machine hours for casting, weighs 1,000 kilograms, and requires 15 direct labor hours.

A) $8.00 per direct labor hr
B) $4.40 per direct labor hr
C) $0.13 per direct labor hr
D) $0.80 per direct labor hr

Question 52

Orlando Avionics makes three types of radios for small aircraft-model A, model B, and model C. The manufacturing operations are mechanized and there is no direct labor. Manufacturing overhead costs are significant, and Orlando has adopted an activity-based costing system. Direct materials costs per unit for each model are as follows:
Model A $28
Model B $32
Model C $40
Orlando has three activities-assembly, materials management, and testing. The cost driver for assembly is machine hours. The cost driver for materials management is number of parts, and the cost driver for testing is the number of units of product. Total costs and production volumes for the year 2012 were estimated as follows:
$$\begin{array} { | l | r | r | r | } \hline & \text { Total cost } & { \text { Total units } } & \\\hline \text { Assembly } & \$ 780,000 & 120,000 & \text { Machine hours } \\\hline \text { Materials management } & \$ 120,000 & 80,000 & \text { Parts } \\\hline \text { Testing } & \$ 22,500 & 5,000 & \text { Units } \\\hline\end{array}$$

-
The Model C radio requires 19 parts to construct, and also requires 20.5 machine hours of processing. What is the manufacturing cost to make one unit of Model C?

A) $206.25
B) $176.00
C) $126.50
D) $166.25

Question 53

AAA Metal Bearings produces two sizes of metal bearings (sold by the crate)-standard and heavy. The standard bearings require $200 of direct materials per unit (per crate) and the heavy bearings require $245 of direct materials per unit. The operation is mechanized and there is no direct labor. Previously AAA used a single plantwide allocation rate for manufacturing overhead, which was $1.55 per machine hour. Based on the single rate, gross profit data were as follows:
$$\begin{array} { | l | r | r | } \hline \text { Per unit } & { \text { Standard } } & { \text { Heavy } } \\\hline \text { Direct materials cost } & \$ 200.00& \$ 245.00 \\\hline \text { Direct labor cost } & \$ 0.00& \$ 0.00 \\\hline \text { Manuf overhead cost } & \$ 124.00& \$ 93.00 \\\hline \text { Total manuf cost } & \$ 324.00 & \$ 338.00 \\\hline & & \\\hline \text { Price per unit } & \$ 350.00& \$ 370.00 \\\hline \text { Gross profit per unit } &\$26.00 &\$32.00 \\\hline\end{array}$$
Although the data showed that the heavy bearings were more profitable than the standard bearings, the plant manager knew that the heavy bearings required much more processing in the metal fabrication phase than the standard bearings, and that this factor was not adequately reflected in the single allocation rate. He suspected that it was distorting the profit data. He suggested adopting an activity-based costing approach.
Working together, the engineers and accountants identified the following three manufacturing activities, and broke down the annual overhead costs as shown:
$$\begin{array} { | l | r | } \hline \text { Activities: } & \text { Estimated Cost } \\\hline \text { Metal fab } & \$ 420,000 \\\hline \text { Machine processing } & \$ 152,000 \\\hline \text { Packaging } & \$ 17,000 \\\hline & \$ 589,000 \\\hline\end{array}$$
Engineers believed that metal fabrication costs should be allocated by weight, and estimated that the plant processed 12,000 kilos of metal per year. Machine processing costs were correlated to machine hours, and the engineers estimated a total of 380,000 machine hours for the year. Packaging costs were the same for both types of products, and so they could be allocated simply by the number of units produced. The production plan provided for 4,000 units of standard and 1,000 units of heavy bearings to be produced during the year. Additional data on a per unit basis are as follows:
$\begin{array}{|l|r|r|}\hline &\text { Standard}& \text {Heavy}\\\hline \text { Kilos per unit } & 2.00 & 4.00 \\\hline \text { Machine hours per unit } & 80.00 & 60.00\\\hline\end{array}$
Using the data above, please calculate activity rates. Then, following the ABC methodology, calculate the production cost and gross profit for both product types, using the format below:
$$\begin{array} { | l | l | l | } \hline \text { Per Unit } & \text { Standard } & \text { Heavy } \\\hline \text { Direct materials } & & \\\hline \text { Metal fabrication } & & \\\hline \text { Machine processing } & & \\\hline \text { Packaging } & & \\\hline \text { Total mfg cost } & & \\\hline & & \\\hline \text { Price } & & \\\hline \text { Gross profit } & & \\\hline\end{array}$$

Question 54

Orlando Avionics makes three types of radios for small aircraft-model A, model B, and model C. The manufacturing operations are mechanized and there is no direct labor. Manufacturing overhead costs are significant, and Orlando has adopted an activity-based costing system. Direct materials costs per unit for each model are as follows:
Model A $28
Model B $32
Model C $40
Orlando has three activities-assembly, materials management, and testing. The cost driver for assembly is machine hours. The cost driver for materials management is number of parts, and the cost driver for testing is the number of units of product. Total costs and production volumes for the year 2012 were estimated as follows:
$$\begin{array} { | l | r | r | r | } \hline & \text { Total cost } & { \text { Total units } } & \\\hline \text { Assembly } & \$ 780,000 & 120,000 & \text { Machine hours } \\\hline \text { Materials management } & \$ 120,000 & 80,000 & \text { Parts } \\\hline \text { Testing } & \$ 22,500 & 5,000 & \text { Units } \\\hline\end{array}$$

-
What is the allocation rate for the testing activity? (Please round to the nearest cent.)

A) $0.67 per unit
B) $4.50 per unit
C) $0.22 per part
D) $1.50 per part

Question 55

Target cost is the price that customers are willing to pay and target price is the desired cost to produce the product.

Question 56

Orlando Avionics makes three types of radios for small aircraft-model A, model B, and model C. The manufacturing operations are mechanized and there is no direct labor. Manufacturing overhead costs are significant, and Orlando has adopted an activity-based costing system. Direct materials costs per unit for each model are as follows:
Model A $28
Model B $32
Model C $40
Orlando has three activities-assembly, materials management, and testing. The cost driver for assembly is machine hours. The cost driver for materials management is number of parts, and the cost driver for testing is the number of units of product. Total costs and production volumes for the year 2012 were estimated as follows:
$$\begin{array} { | l | r | r | r | } \hline & \text { Total cost } & { \text { Total units } } & \\\hline \text { Assembly } & \$ 780,000 & 120,000 & \text { Machine hours } \\\hline \text { Materials management } & \$ 120,000 & 80,000 & \text { Parts } \\\hline \text { Testing } & \$ 22,500 & 5,000 & \text { Units } \\\hline\end{array}$$

-
What is the allocation rate for the materials management activity? (Please round to the nearest cent.)

A) $0.67 per part
B) $1.50 per part
C) $0.15 per part
D) $6.00 per part

Question 57

Which of the following would NOT be considered an activity for the purposes of an activity-based costing system?

A) Materials handling
B) Machine processing
C) Direct materials cost
D) Packaging

Question 58

Formosa Steel Products makes steel building materials for export, and uses an activity-based costing system to account for the indirect manufacturing costs of its various products. Indirect costs for the whole factory are broken down into three activities-casting, materials handling, and milling. The cost driver for casting is machine hours; the cost driver for material handling is kilograms, and the cost driver for milling is direct labor hours. Activity costs and volumes for the year were estimated as follows:
$$\begin{array} { | l | r | r | r | } \hline { \text { Activity } } & { \text { Cost } } &{ \text { Volume } } & \\\hline \text { Casting } & \$ 2,000,000 & 800,000.00 & \text { Machine hours } \\\hline \text { Material Handling } & \$ 400,000 & 500,000.00 & \text { Kilograms } \\\hline \text { Milling } & \$ 1,120,000 & 140,000.00 & \text { Direct labor hours } \\\hline\end{array}$$
One product is steel reinforcement rods, sold by the metric ton. Engineering reports show that one metric ton of steel reinforcement rods requires $100 of direct materials cost plus $50 of direct labor cost. Producing one metric ton of steel rods also requires 24 machine hours for casting, weighs 1,000 kilograms, and requires 15 direct labor hours.

-
What is the full manufacturing cost for one metric ton of steel reinforcement rods? (Please round to the nearest whole dollar.)

A) $1,130
B) $980
C) $1,030
D) $975

Question 59

Formosa Steel Products makes steel building materials for export, and uses an activity-based costing system to account for the indirect manufacturing costs of its various products. Indirect costs for the whole factory are broken down into three activities-casting, materials handling, and milling. The cost driver for casting is machine hours; the cost driver for material handling is kilograms, and the cost driver for milling is direct labor hours. Activity costs and volumes for the year were estimated as follows:
$$\begin{array} { | l | r | r | r | } \hline { \text { Activity } } & { \text { Cost } } & { \text { Volume } } & \\\hline \text { Casting } & \$ 2,000,000 & 800,000.00 & \text { Machine hours } \\\hline \text { Material Handling } & \$ 400,000 & 500,000.00 & \text { Kilograms } \\\hline \text { Milling } & \$ 1,120,000 & 140,000.00 & \text { Direct labor hours } \\\hline\end{array}$$
One product is steel reinforcement rods, sold by the metric ton. Engineering reports show that one metric ton of steel reinforcement rods requires $100 of direct materials cost plus $50 of direct labor cost. Producing one metric ton of steel rods also requires 24 machine hours for casting, weighs 1,000 kilograms, and requires 15 direct labor hours.

-
What is the activity rate for the casting activity?

A) $0.40 per machine hour
B) $4.40 per machine hour
C) $2.50 per machine hour
D) $1.25 per machine hour

Question 60

AAA Metal Bearings produces two sizes of metal bearings (sold by the crate)-standard and heavy. The standard bearings require $200 of direct materials per unit (per crate) and the heavy bearings require $245 of direct materials per unit. The operation is mechanized and there is no direct labor. Previously AAA used a single plant-wide allocation rate for manufacturing overhead, which was $1.55 per machine hour. Based on the single rate, gross profit data were as follows:
$$\begin{array} { | l | r | r | } \hline \text { Per unit } & { \text { Standard } } &{ \text { Heavy } } \\\hline \text { Direct materials cost } & \$ 200.00 & \$ 245.00 \\\hline \text { Direct labor cost } & \$ 0.00 & \$ 0.00 \\\hline \text { Manuf overhead cost } & \$ 124.00 & \$ 93.00 \\\hline \text { Total manuf cost } & \$ 324.00 & \$ 338.00 \\\hline & & \\\hline \text { Price per unit } & \$ 350.00 & \$ 370.00 \\\hline \text { Gross profit per unit } & \$ 26.00 & \$ 32.00 \\\hline\end{array}$$
Although the data showed that the heavy bearings were more profitable than the standard bearings, the plant manager knew that the heavy bearings required much more processing in the metal fabrication phase than the standard bearings, and that this factor was not adequately reflected in the single allocation rate. He suspected that it was distorting the profit data. He suggested adopting an activity-based costing approach.
Working together, the engineers and accountants identified the following three manufacturing activities, and broke down the annual overhead costs as shown:
$$\begin{array} { | l | r | } \hline \text { Activities: } & \text { Estimated Cost } \\\hline \text { Metal fabrication } & \$ 420,000 \\\hline \text { Machine processing } & \$ 152,000 \\\hline \text { Packaging } & \$ 17,000 \\\hline & \$ 589,000 \\\hline\end{array}$$
Engineers believed that metal fabrication costs should be allocated by weight, and estimated that the plant processed 12,000 kilos of metal per year. Machine processing costs were correlated to machine hours, and the engineers estimated a total of 380,000 machine hours for the year. Packaging costs were the same for both types of products, and so they could be allocated simply by the number of units produced. The production plan provided for 4,000 units of standard and 1,000 units of heavy bearings to be produced during the year. Additional data on a per unit basis are as follows:
$$\begin{array} { | l | r | r | } \hline & { \text { Standard } } & { \text { Heavy } } \\\hline \text { Kilos per unit } & 2.00 & 4.00 \\\hline \text {Machine hours per unit } & 80.00 & 60.00 \\\hline\end{array}$$
Using the data above, please calculate activity rates. Then, following the ABC methodology, calculate the production cost and gross profit for one unit of standard bearings, using the format below:
$$\begin{array} { | l | l | l | } \hline { \text { Standard Bearings } } & \\\hline \text { Per Unit } & \text { Activity rate } & \text { Amountper unit } \\\hline \text { Direct materials}\\\hline \text { Metal fabrication } & & \\\hline \text { Machine processing } & & \\\hline \text { Packaging } & & \\\hline \text { Total mfg cost } & & \\\hline & & \\\hline \text { Price } & & \\\hline \text { Gross profit } & & \\\hline\end{array}$$

Question 61

Lisbon Manufacturing is considering the manufacture of a new product. Lisbon was hoping to sell the product for $588 per unit and estimated the total cost per unit to be $420. Lisbon conducted market research and found out that the market is only willing to pay $539 for the new product. Using the target costing approach, what does the total per unit cost of the new product have to be if Lisbon wants to achieve a 40% markup on total cost?

A) $215.60
B) $385.00
C) $257.60
D) $420.00

Question 62

Target costing starts with the price that customers are willing to pay and then subtracts the company's desired profit to determine the desired full-product cost.

Question 63

Full-product cost includes all manufacturing costs plus selling expenses, but does not include administrative expenses.

Question 64

Equival Company wishes to sell truck axles to car manufacturers. The current market price of the axles is $400, and Equival knows it must accept the market price. The company wishes to make a profit equal to 20% of the price. Using target costing, Equival will have to design the production process to meet this requirement. What is the desired target cost per axle?

A) $320
B) $480
C) $420
D) $380

Question 65

Ganges Company makes bulk burlap by the ton. Currently, their manufacturing cost is $215 per unit, and their non-manufacturing cost is $40 per unit. The going market price of the product is $300. Ganges uses
The target price and target cost methodology. If they desire to make a profit of 20% on the price, what must they do?

A) Increase the advertising costs by $15 per unit.
B) Reduce the price they charge by $15 per unit.
C) Reduce the full-product cost by $60 per unit.
D) Reduce the full-product cost by $15 per unit.

Question 66

Activity-based management can be used to make business decisions about cost cutting.

Question 67

Arnold Company produces handheld calculators, and their manufacturing cost is currently $5.80 per unit. The company also has non-manufacturing costs of $1.20 per unit. Arnold employs target pricing strategy, and the current market price is $8.00 per unit. If Arnold wishes to price their product at a 25% markup over full-product cost, what must they do?

A) Price the product at $8.75 per unit.
B) Reduce full-product cost by $0.20.
C) Reduce full-product cost by $0.60.
D) Reduce the non-manufacturing cost by 25%.

Question 68

Percival Company wishes to sell wooden beams to home builders. The current market price of the beams is $950, and Percival knows it must accept the market price. The company wishes to make a profit equal to 16% of the price. Using target costing, the company will have to design the production process to meet this requirement. What is the desired target cost per beam?

A) $798
B) $1,062
C) $152
D) $800

Question 69

Which of the following describes full-product cost?

A) All production costs plus all non-manufacturing costs
B) All production costs
C) Direct materials plus direct labor cost
D) Manufacturing overhead plus non-manufacturing cost

Question 70

Bakersfield Manufacturing produces agricultural tools including a hand tiller. Their current full-product cost for a hand tiller is $20. Bakersfield wishes to make a 15% profit on the selling price. Bakersfield uses a target pricing strategy. The current competitive market price for this product is $22.00. What would be the most appropriate response to this situation?

A) Employ cost plus pricing.
B) Carry out value engineering study.
C) Expand production facilities.
D) Strengthen internal controls.

Question 71

What is value engineering?

A) Reevaluating market strategies to create a more valuable product
B) Estimating the value added of the engineering processes
C) Reevaluating production activities to reduce costs
D) Estimating the value of the end product

Question 72

Full-product cost includes both manufacturing and non-manufacturing costs.

Question 73

Business managers can use activity-based costing data to assist them in pricing and product mix decisions, and in cost management.

Question 74

Morley Manufacturing is considering the manufacture of a new product. Morley was hoping to sell the
Product for $168 per unit and estimated the total cost per unit to be $120. Morley conducted market research and found out that the market is only willing to pay $154 for the new product. Using the target costing approach, what does the total per unit cost of the new product have to be if Morley wants to achieve the same amount of profit as originally planned?

A) $110
B) $106
C) $109
D) $100

Question 75

Bakersfield Manufacturing produces agricultural tools including a hand tiller. Their current full-product cost for a hand tiller is $20. Bakersfield wishes to make a 15% profit on the selling price. Bakersfield uses a target pricing strategy. The current competitive market price for this product is $22. What does Bakersfield have to do to achieve their profit objective?

A) Reduce full-product cost by $1.30.
B) Reduce full-product cost by $3.00.
C) Reduce full-product cost by $2.70.
D) Reduce full-product cost by $11.25.

Question 76

Percival Company wishes to sell wooden beams to home builders. The current market price of the beams is $950, and Percival knows it must accept the market price. Currently, the beams cost Percival $809 to produce. The company wishes to make a profit equal to 16% of the price. Which of the following strategies would help Percival accomplish their objective?

A) Increase the production cost by $22 per unit.
B) Increase the volume of sales.
C) Increase the sales price to $961.
D) Reduce production costs by $11 per unit.

Question 77

Value engineering requires the collaboration of marketing, engineering and accounting personnel to achieve the optimum results.

Question 78

Target pricing is based on the cost to produce a product, plus a profit mark-up.

Question 79

Equival Company wishes to sell truck axles to car manufacturers. The current market price of the axles is $400, and Equival knows it must accept the market price. Currently, it costs the company $330 to produce each axle. The company wishes to make a profit equal to 20% of the price. Which of the following strategies should Equival adopt to achieve its objective?

A) Raise the price to $410.
B) Reduce its production costs by $10 per unit.
C) Increase the production costs by $20 per unit.
D) Use advertising to increase the volume of sales.

Question 80

Madrid Manufacturing is considering the manufacture of a new product. Madrid was hoping to sell the product for $504 per unit and estimated the total cost per unit to be $360. Madrid conducted market research and found out that the market is only willing to pay $462 for the new product. Using the target costing approach, how much will Madrid have to reduce the production cost in order to achieve the same amount of gross profit as originally planned?

A) $47
B) $31
C) $30
D) $42